China's growing ability to buy and sell millions of barrels of crude oil on the Asian physical market in a matter of minutes through its main trading firms has given China so much clout that other traders are often forced to follow its agreed prices.
Leading Chinese oil traders have cornered the market on several occasions since October last year. Early this month, Chinaoil, the trading arm of PetroChina, bought 5 million barrels of crude in just 30 minutes through Asia's main price-finding mechanism organized by Platts, part of McGraw Hill Financial.
Market power is shifting towards big consumers, with oil output at record highs and global demand slowing. China's main oil traders Unipec and Chinaoil have been able to cherry-pick the best offers and take advantage of cheap oil to build strategic reserves.
"China's view of supply security is now increasingly a question of becoming a price maker and being involved in the entire supply chain globally," said Michal Meidan, director of consultancy China Matters.
This year, China is challenging the United States as the world's No. 1 crude buyer, with weaker oil prices lowering the cost of building China's strategic petroleum reserves. China bought nearly 11 percent more crude in the first seven months of 2015 from a year earlier.
For China, the cost of importing roughly 200 million barrels of crude a month has fallen to $10 billion at current prices around $50 a barrel, from $23 billion when prices were at $115 a barrel last summer.
'Get out of the way'
Nowhere has China's move from price taker to maker been more obvious than in daily physical crude oil trading. Unipec, the trading unit of Sinopec, and Chinaoil often dominate daily trading, surpassing volumes dealt by Western majors.
"Get out of the way when the train is running," said a trader with an Asian refiner. "Little guys like us can get run over easily."
Riding on China's growth of the past decade, which has not only seen it become a top crude importer but also a large exporter of refined products, Sinopec and PetroChina have evolved from being passive oil importers to sophisticated traders of crude oil and refined fuels.
Since the second half of 2014, both firms saw oil traders ascend to top management, replacing executives of either planning or refinery manager background, company sources said. Sinopec and PetroChina do not comment on trade-related matters.
The huge volumes exchanged by China's two major traders are straining Asia's benchmark price-finding mechanism in the physical oil market, the Dubai Market-on-Close (MoC) by Platts.
In a process called "the window" by many traders, the soaring activity of these traders has often led little space for other participants to trade in the oil price-making process.
"The concern which I and a lot of others have is that the Dubai market does not reflect the true market price of Middle East crude with this kind of action," said Oystein Berentsen, managing director of crude oil with Singapore-based Strong Petroleum.
Additionally, the government is slowly deregulating its import market, granting more licenses to independent refiners to buy overseas crude, further boosting demand not just for physical crude from the Middle East, but also for the main international crude futures benchmarks Brent and West Texas Intermediate (WTI).
"Granting of crude import licenses is one step towards deregulating China's oil industry. This also helps boost demand for lighter grades," said Singapore-based brokerage Phillip Futures this week in a note to clients.
"Thus, it could help support both WTI and Brent, which are of the lighter grades."